restrictions on reaching the planning goals. Shadow prices in the dual can also be
influenced by this issue, thereby entailing significant interpretation mistakes.
Finally, like most general-equilibrium models, the method needs a heavy collection of data, much information processing, and computer effort. The planner must
therefore decide whether the problem is sufficiently complex to require such an
elaborate model.
8.10 Economic Measurement of Environmental Impacts:
Limits
The approaches and techniques described earlier are designed to help those planning
projects to identify, quantify, monetize and include the environmental effects of the
projects they are planning. Some of these techniques are easily applied, while others
demand more in the way of data and time. Although the approaches and techniques
advocated here are theoretically well founded, there are limitations to the economic
measurement of sustainability and environmental effects in general, and specifically
to the use of benefit-cost analysis (BCA) for this purpose.
Some of the issues, such as valuing the loss of a human life, are controversial and
raise important ethical questions. Others, such as the value of genetic diversity or
cultural significance, raise intractable questions of measurement. Some of the issues
will be briefly discussed with short descriptions of the relevant questions and
thinking concerning them.
8.10.1 Income Distribution
Evaluating economic efficiency is the primary objective of most project analyses, but
most governments and development banks are also interested in the effect of projects
on income distribution. Traditional economic analysis accepts - or at least does not
question - either existing income distribution or that which would prevail following
the implementation of an “efficient” project. On the assumptions that underlie BCA,
a society will be economically efficient in its use of resources when net monetary
social benefits - that is the difference between total monetary benefits and total
monetary costs, measured in socially desirable prices - are maximized.
Efficiency is measured without regard to whom the benefits and costs accrue and
irrespective of whether society considers the prevailing distribution of income to be
desirable. If income distribution is of concern, as it is in most developing countries,
then the distribution of costs and benefits must be considered in the BCA. Projects
which will primarily benefit already wealthy individuals at the expense of poorer
individuals may be undesirable on distributional grounds, even if they show high
benefit/cost ratios.
8.10 Economic Measurement of Environmental Impacts: Limits
245
influenced by this issue, thereby entailing significant interpretation mistakes.
Finally, like most general-equilibrium models, the method needs a heavy collection of data, much information processing, and computer effort. The planner must
therefore decide whether the problem is sufficiently complex to require such an
elaborate model.
8.10 Economic Measurement of Environmental Impacts:
Limits
The approaches and techniques described earlier are designed to help those planning
projects to identify, quantify, monetize and include the environmental effects of the
projects they are planning. Some of these techniques are easily applied, while others
demand more in the way of data and time. Although the approaches and techniques
advocated here are theoretically well founded, there are limitations to the economic
measurement of sustainability and environmental effects in general, and specifically
to the use of benefit-cost analysis (BCA) for this purpose.
Some of the issues, such as valuing the loss of a human life, are controversial and
raise important ethical questions. Others, such as the value of genetic diversity or
cultural significance, raise intractable questions of measurement. Some of the issues
will be briefly discussed with short descriptions of the relevant questions and
thinking concerning them.
8.10.1 Income Distribution
Evaluating economic efficiency is the primary objective of most project analyses, but
most governments and development banks are also interested in the effect of projects
on income distribution. Traditional economic analysis accepts - or at least does not
question - either existing income distribution or that which would prevail following
the implementation of an “efficient” project. On the assumptions that underlie BCA,
a society will be economically efficient in its use of resources when net monetary
social benefits - that is the difference between total monetary benefits and total
monetary costs, measured in socially desirable prices - are maximized.
Efficiency is measured without regard to whom the benefits and costs accrue and
irrespective of whether society considers the prevailing distribution of income to be
desirable. If income distribution is of concern, as it is in most developing countries,
then the distribution of costs and benefits must be considered in the BCA. Projects
which will primarily benefit already wealthy individuals at the expense of poorer
individuals may be undesirable on distributional grounds, even if they show high
benefit/cost ratios.
8.10 Economic Measurement of Environmental Impacts: Limits
245